Good morning, traders; Welcome to our market week preview, where we take a look at the economic data, market news and headlines likely to have the biggest impact the price of gold this week and beyond, as well as market prices for silver, the US Dollar, and other key correlated assets.
Following some weakness throughout the European morning, gold prices have rebounded sharply since the pre-market start to US trading on Monday; The yellow metal appears to be benefiting from one of its more tradition tailwinds: An increasing sense of uncertainty and risk aversion.
Earlier this month, we talked about the week following the Fourth of July as likely the slowest week of the summer for financial markets and trading. While we should still see more trading activity relative to that holiday week, the next five trading days look to be the lightest of the summer in terms of economic data: We have the weekly run of labor market data, and a European Central Bank meeting where a shift in guidance might pass through to Dollar and commodities pricing (The Fed are themselves quiet this week, ahead of the July FOMC meeting next Tuesday and Wednesday.)
With that, keeping an eye on more typical headline news flow will be important to tracking the gold market this week. New bounces in Covid-19 cases around the world are unsettling marketplace: the rate of infections in some Asian countries are reaching new highs; Stateside, new cases rose well over 50% last week while the world is nervously watching as the UK lifted all Covid restrictions over the weekend (at the same time as Prime Minister Johnson is self-isolating after exposure.) Concerns about a global health backslide certainly seem to be rattling markets this morning. Following sharp declines in the major stock indexes in Asian and Europe, the US equity markets opened immediately down this morning. At the time of writing, the Dow is off by 2% while the S&P and NASDAQ are following behind. The uncertainty and loss of risk appetite apparent in these moves is surely contributing to the strong risk-off rally we’ve seen in gold prices to start the week.
With gold’s connections to other primary commodities, it will also be worth tracking developments around the deal reached by OPEC+ over the weekend to increase crude oil production over the next year. The news has understandably pulled oil prices from recent highs; A more appreciable drop in crude prices could present some resistance to gold via the broader commodities complex. (Longer-term, this could be somewhat bullish news for gold as part of the reopening/reflation trade. Increased supply, leading to lower energy and gas prices, may encourage the “normalizing” of the recent spikes in inflation as discussed last week.)
For now, let’s take a look at the rest of the calendar ahead.
US Economic Data to Watch
Thursday, July 22 at 830am EDT // Initial Jobless Claims
[consensus est.: +350K // prev.: +360K]
The deceivingly slow recovery of the US labor market appears to be continuing at pace, but the running four-week average of Initial Jobless Claims remains close to all-time highs. For now, as long as the weekly number doesn’t suddenly jump well above 400,000 in a given week it should be fairly smooth sailing through this data point each week. Atypically, a sharp and sudden drop in the weekly claims number might put some pressure on gold prices if it leads investors to suspect that the Fed’s labor market targets might be reached sooner than expected.
Global Economic Data to Watch
Thursday, July 22 at 645am EDT // ECB Interest Rate Decisions
[No meaningful changes to monetary policy are expected.]
Following a review of its monetary policy targets and strategy earlier this summer, there’s an expectation that the ECB will use this week’s meeting to make changes to the central bank’s post-meeting language and forward guidance, in essence, bringing the ECB’s goals (and willingness to let inflation “overshoot” in pursuit of stability around said goals) in line with the current policy framework of the US Federal Reserve. It’s possible that the timing of this ECB shift coming at a point when some investors (following last week’s CPI report and some mild adjustments to Jerome Powell’s language around the inflation outlook) might perceive the US central bank as taking a step closer to higher interest rates might signal a divergence in monetary policy between two major trading partners that would result in a strengthening Dollar—and more bearish obstacles for gold.
And that’s how the week lays out ahead of us, traders. As always, I wish you all the very best of luck in your markets in the coming days, and I’ll look forward to seeing you all back here on Friday for our market-week wrap up.